Murdoch McKillop, president of the Society for Practitioners of Insolvency, responds to last week’s City Comment.
Readers of last week’s “City Comment” might have thought that the opportunity for licensed insolvency practitioners had just passed. Apparently “the gravy train might be about to hit the buffers”.
The public only believes in such a “gravy train” because headline numbers focus on the cost and not the value achieved. This is partly because the principles by which office-holders should be remunerated are poorly defined in legislation.
But things are going to change. Mr Justice Ferris’s forthcoming report will help provide a framework for the future, which will be welcomed by creditors and insolvency practitioners alike.
I expect the report to follow the main principle set out in Mr Justice Ferris’s July 1997 judgment on receivers’ fees in the Maxwell private estate, that: “Remuneration should be fixed so as to reward value, not so as to indemnify against costs.”
It must be to PricewaterhouseCoopers’ chagrin (as liquidator of Peregrine) that the Ferris guidelines are not already in place.
In three months, it brought under control a global operation with 2,000 open positions, worth US$8bn. The liquidator’s fee of US$5m, criticised by the judge, represents just 1.4 per cent of assets recovered so far. The creditors unanimously confirmed the liquidator’s appointment without questioning fees.
In many other cases, creditors’ committees have been rigorous in examining the fees of the insolvency practitioners involved and have approved them in nearly every case.
Sadly, in many insolvencies, there is little value left for creditors. Nearly 70 per cent of UK insolvencies are in companies that turn over less than £1m. Here our role is to get what we can for creditors while determining what went wrong.
If society wants this work done, then creditors will have to pay for it. But the profession must show creditors that the task is being handled effectively and at minimum cost.
We must communicate with the people we serve – providing maximum transparency and accountability to creditors – which will come from the Ferris report. The profession started this process with a statement of insolvency practice issued in 1996.
Taxation of fees is not the answer. Lawyer-style time recording takes no account of the work insolvency practitioners do – we move from crisis to crisis making commercial, pragmatic decisions and working through their consequences.
Excessively detailed time recording is not cost-effective, and could prevent office-holders from doing the job they are meant to do – achieving maximum net realisations.